How citizenM Created New Market Space In The Hotel Industry

"If there ever were a red ocean," observes Michael Levie, co-founder of CitizenM Hotels, "the hotel industry would be it. It's redder than red."

Four-star hotels offer four-fifths of what five-star hotels offer. Three-star hotels offer three-quarters of what four-star hotels provide. And so on down to one-star hotels that offer roughly half of what two-star hotels offer. In other words, they all compete on essentially the same things. "In this industry," says Levie, "people think they've innovated if they change the paint color on the walls or switch the type of chocolate on the pillow."

Against this backdrop, Rattan Chadha and Michael Levie, co-founders of CitizenM - both new entrants to the hotel industry - wanted to create a blue ocean with a new kind of hotel chain. One that would capture the growing mass of frequent travelers - what they call "mobile citizens" - whether traveling for business or for pleasure.

A red ocean of hotels all competing on the same factors

The two entrepreneurs noticed that many of these "mobile citizens" were frequenting either three-star or luxury hotels. Sensing a blue ocean opportunity, they wanted to understand why frequent travelers chose luxury hotels over three-star hotels and vice versa. As they did, a host of insights began to emerge.

Despite all the factors the hotel industry competes on, it turned out that only three factors stood out as decisive in determining why frequent travelers traded up to five-star hotels over three stars: the feeling of luxury and beauty they experience; its more luxurious sleeping environment; and their prime location. As for those who choose a three-star hotel over a five-star, price jumped out as the most common factor, followed by one other: five-star hotels often felt too formal and pretentious. The Eliminate-Reduce-Raise-Create Grid (ERRC Grid), a key blue ocean analytic, allows us to lay this out.

Read the full article at Blue Ocean Strategy | Shift | Leadership